DR Horton Avoids Warranty Responsibility for Defective House
This Alabama Supreme Court decision regarding a defective, mold contaminated DR Horton home should convince every homeowner with a defective home to avoid Binding Mandatory Arbitration (BMA) at all cost.  As Sherry Gay Hereford and so many new homebuyers before her learned BMA is a dead end and renders a new home warranty useless and unenforceable.  For the past 12 years builders have valued BMA clauses as their “24K gold cash cow” to limit liability for building substandard and shoddy home construction.  See related BMA decision – Robert & Jane Cull and their 10-year ordeal with the generously self-serving multibillionaire political campaign donor, homebuilder Bob Perry.

Ala. Supreme Court Affirms Ruling For Developer D.R. Horton
September 9 2008

PDF Al. Supreme Court Opinion

MONTGOMERY, Ala. — Alabama’s high court has upheld an arbitrator’s decision in favor of a homebuilder accused of breach of warranty, saying the homeowner offered no basis on which to overturn the award. Hereford v. D.R. Horton Inc., No. 1070396 (Ala. Sup. Ct.).

The Supreme Court noted in its unanimous Sept. 5 opinion that the sole issue raised by the homeowner was whether the arbitrator’s decision was in manifest disregard of the law, which is not a valid ground for relief given the U.S. Supreme Court’s recent holding in Hall Street Associates, L.L.C. v. Mattel, Inc., ___U.S.___, 128 S. Ct. 1396, 170 L. Ed. 2d 254 [2008]).

Sherry Gay Hereford purchased a house from D.R. Horton Inc. in 2003, but discovered water damage in a bedroom several months after the purchase. She notified Horton and sought repairs pursuant to a one-year warranty agreement. That agreement included a mandatory arbitration clause.

Horton repaired a condensation drainpipe in the heating and air-conditioning system, but balked at treating the entire house for mold, as was recommended by a certified industrial hygienist hired by Hereford.

The Herefords moved out of the house and filed a claim under a homeowners’ policy issued by Alfa Insurance Co. Alfa agreed to pay $20,000 to a remediation company for additional repairs and mold treatment.

The Herefords also filed a lawsuit against Horton, alleging breach of warranty. Horton moved to compel arbitration. The action was stayed while the parties unsuccessfully attempted to settle, and they jointly agreed to submit the dispute to arbitration.

The arbitrator found for Horton, concluding that Hereford could not prove damages because they were either covered by her insurer or excluded under the home warranty as consequential damages.

Hereford asked the Shelby Circuit Court to overturn the award for Horton and, when that effort proved unsuccessful, appealed to the Alabama Supreme Court, arguing that the arbitrator’s decision was in manifest disregard of the law.

Without addressing the merits of that claim, the Supreme Court held that because the arbitration agreement was governed by the Federal Arbitration Act, the U.S. Supreme Court’s holding in Hall Street Associates barred Hereford’s sole argument on appeal.

“In light of the fact that the Federal Arbitration Act is federal law, and in light of the Supremacy Clause of the Constitution of the United States, Art. VI, we hereby overrule our earlier statement in Birmingham News, [Birmingham News Co. v. Horn, 901 So. 2d 27, 44 (Ala. 2004)] that manifest disregard of the law is a ground for vacating, modifying, or correcting an arbitrator's award under the Federal Arbitration Act, and we also overrule any such language in our other cases construing federal arbitration law,” the Supreme Court added.

W. Eugene Rutledge of Birmingham, Ala., was counsel for Hereford.

Jason R.Bushby and Brian O’Dell of Bradley Arant Rose & White and D. Christopher Carson and Ellen P. Mathews of Burr & Forman, all of Birmingham, Ala., were counsel for D.R. Horton Inc.